V. 26:10 (62): Explore Your Options by Tom Gentile

V. 26:10 (62): Explore Your Options by Tom Gentile
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Explore Your Options by Tom Gentile


If you place an order to buy a September 95 call for $1.50 and sell the September 100 call for $0.75, the total debit is $0.75. If the option now has gone to zero, do you need to reverse the order to get out of the trade? Or do you hold until the expiration and do nothing? In addition, can I buy to close the September 100 call without selling to close the September 95 call?

It sounds like you entered a bull call spread and the market turned south on you. Also, your spread was probably on options that were either deep out of the money or very close to expiration or both. You were paying just 75 cents for the spread and had the potential of making $4.25 (the difference between the strike prices of the options minus the cost of the spread). The reward-to-risk ratio is almost 6-to-1! This is a very aggressive strategy. As it turns out, it sounds like the underlying security did not make the explosive move you were looking for and the value of the options has fallen to zero.

In this case, if the options have just a few days or a week of life remaining, the outlook isnít bullish and chances are the contracts will expire worthless. You donít have to do anything. The contracts will expire worthless and you will be out of the trade. The initial debit of 75 cents per spread is lost.

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